Unicorn Investment Bank

In July 2006, Unicorn’s Capital Markets team completed a landmark securitization transaction on behalf of Kingdom Installment Company (KIC), a pioneer of housing finance in Saudi Arabia. Unicorn acted as lead manager, Shari’ah advisor and, in partnership with Standard Bank, joint bookrunner to the transaction.

The KSA MBS I International Sukuk (KSA MBS I) marked the first true-sale securitization in the GCC region and was backed by US$23 million of Ijara and Istisna contracts, providing a vital, off-balance-sheet alternative source of funding to KIC as well as a Shari’ah-compliant, fixed income product (similar to a mortgage-backed security) to GCC and international capital market investors. The underlying Sukuk structure and assets were assigned a credit rating of A- by Capital Intelligence Ltd, an international credit rating agency with a strong track record of rating GCC region credits.

The International Finance Corporation (IFC), the private sector financing arm of the World Bank, participated in the transaction by providing an innovative mezzanine credit enhancement in the form of a stand-by Murabaha facility. The Sukuk also carries credit enhancement from Saudi Arabia’a Dar Al-Arkan Real Estate Development Company.

Marketing of the Sukuk was targeted at international investors outside the GCC region, with 15% of the issue placed with Asian accounts and 85% with European accounts. The issue was sold against a volatile emerging market backdrop for fixed income securities, a testament to the robustness of the structure and the international appetite for Saudi risk.

KSA MBS I was the first of a series of issues expected from KIC to enable the company to meet the huge demand for housing finance in Saudi Arabia. Established in 1977, KIC is the largest specialist housing finance company in Saudi Arabia and was the first lender in the region to offer 20-year fixed rate loan financing.